Bank of Japan officials believe weak consumer spending complicates their decision on whether to raise interest rates at next week's policy meeting, according to people familiar with the matter.
Some officials see not raising rates in July as an option to give them more time to study new data and confirm whether consumer spending is picking up as expected, people familiar with the matter said.
Some of them believe the BOJ should avoid coming across as overly hawkish.
Meanwhile, other officials remain open to raising interest rates at the July meeting given that inflation trends remain roughly in line with forecasts.
These officials said that the Bank of Japan's current policy interest rate range of 0 to 0.1% is very low, and given the many uncertainties in the future, they believe that the Bank of Japan may miss the opportunity to raise interest rates.
Officials at the meeting ending on July 31 are likely to wait until the last minute to make a final decision after examining the latest data on market and economic conditions, according to people familiar with the matter.
The Bank of Japan is also expected to announce plans to reduce its bond purchases at that time. The central bank is not planning any big surprises, these people said.
Some BOJ officials have been encouraged by a better understanding among market participants of the central bank’s stance on reducing bond purchases, people familiar with the matter said.
In the eyes of BOJ officials, many in the market initially viewed the reduction as very modest compared with the current monthly pace of 6 trillion yen ($38 billion) in bond purchases. But many market participants now expect the pace of monthly bond purchases to be reduced to 3 trillion yen within two years.
Officials also expect the BOJ to intervene if bond yields rise sharply, regardless of whether that commitment is written into the statement, the people said.
Most BOJ watchers expect the central bank to keep interest rates unchanged at this meeting as raising borrowing costs while cutting bond purchases is seen as an aggressive move.
A third of analysts who expect the Bank of Japan to raise rates in July cited boosting the yen as a motive, saying in a Bloomberg survey last month that the central bank cannot let the yen fall again by doing nothing on rates.
Japan’s government cut its economic growth forecast for the current fiscal year ending March 2025 to 0.9% due to weak consumer spending.
The Bank of Japan is likely to cut its economic growth forecast for this fiscal year to around 0.5% from 0.8%, mainly due to a revision in its gross domestic product (GDP) data earlier this month, people familiar with the matter said.
GDP data showed Japan's consumer spending fell in each of the four quarters to the end of March.
In addition, they said officials did not see the need to make major changes to their inflation forecasts next week.
Article forwarded from: Jinshi Data
